“My own view, by the way, was that the auto companies needed to go through bankruptcy before government help. And frankly, that’s finally what the president did. He finally took them through bankruptcy. That was the right course I argued for from the very beginning. It was the UAW [United Auto Workers] and the president that delayed the idea of bankruptcy. I pushed the idea of a managed bankruptcy and finally when that was done, and help was given, the companies got back on their feet. So I’ll take a lot of credit for the fact that this industry’s come back.”
— Mitt Romney, May 7, 2012, in an interview with Cleveland’s WEWS-TV
What should we do when a politician keeps repeating a Pinocchio-laden claim — or even makes its worse?
We have examined previously the former Massachusetts governor’s claim that he set the course for the managed bankruptcy of the auto industry—and also have examined critically some of President Obama’s claims on the bailout. But clearly it’s time for a refresher course.
The first key to Romney’s claim is that, in November of 2008, as then President George W. Bush considered financial assistance for the auto industry, he wrote an opinion article for The New York Times under the headline, “Let Detroit Go Bankrupt.”
Romney argued that if the automakers “get the bailout that their chief executives asked for yesterday, you can kiss the American automotive industry goodbye. It won’t go overnight, but its demise will be virtually guaranteed.”
As Romney put it, “Detroit needs a turnaround, not a check.” In particular, he called for a “managed bankruptcy.” This is a process in which the company uses the bankruptcy code to discharge its debts, but emerges from the process a leaner, less leveraged company.
When auto executives first sought government assistance at the end of 2008, they argued a bankruptcy filing would hurt their business. But they were wrong—and after getting nearly $80 billion in loans and other assistance from the Bush and Obama administrations, General Motors and Chrysler eventually did go through a managed bankruptcy.
But does that mean that Romney’s advice was actually followed? No, not really.
The problem is that many independent analysts have concluded that taking the approach recommended by Romney would not have worked in late 2008, simply because the credit markets were so frozen that a bankruptcy was not a viable option.
“The circumstances in the global credit markets in November and December 2008 were unlike any the financial markets had seen in decades. U.S. domestic credit markets were frozen in the wake of the Lehman bankruptcy, and international sources of funding were extremely limited,” concluded the bipartisan Congressional Oversight Panel, in a unanimous finding. “Bankruptcy with reorganization of the two auto companies using private DIP [debtor in possession] financing did not appear to be an option by late fall 2008, leaving liquidation of the firms as the more likely course of action absent a government rescue.”
The Bush administration’s Council of Economic Advisers estimated “the direct costs of American automakers failing and laying off their workers in the near term would result in a more than 1 percent reduction in real GDP [gross domestic product] growth and about 1.1 million workers losing their jobs, including workers for automotive suppliers and dealers.”
Indeed, when Romney reiterated earlier this year that he believed that a managed bankruptcy was viable without government intervention, he was criticized by auto industry insiders.
Mike Jackson, the chief executive of AutoNation, wrote a letter to the the Detroit News saying that Romney was “truly reckless, detached from reality and dishonest… Mitt’s assertion that private financing ‘DIP’ was available in fall of ’08 into ’09 is fantasy. Everyone knows we were in the midst of the greatest financial meltdown since the 1930’s.” And Bob Lutz, former vice chairman at GM, said, “What these people always deliberately forget is there was no money. Nobody had any money.”
Furthermore, while Romney can certainly argue he consistently supported a managed bankruptcy, it is especially odd to also try to take credit for the industry’s more recent success.
As Micheline Maynard, who closely covered the bailout for The New York Times, put it, Romney’s efforts on behalf of saving the industry seemed confined to writing an opinion article. “I don’t recall any of the lawyers, bankers, lawmakers, union leaders and others we all talked in the course of our reporting bringing up his name,” she wrote. “In fact, one of the key bankers I spoke with regularly is a high-powered financier for GOP candidates, and he surely would have detailed Romney’s role, if he played one.”
The Pinocchio Test
Given the likelihood that discredited claims will be repeated — often — in this election cycle, we are going launch a new category called “repeat offender.” We still have to create a graphic, but in the meantime we are going to increase Romney’s Pinocchio rating for his auto bailout claims from Two to Three Pinocchios.
Romney has been consistent on his position that a managed bankruptcy was the best course of action. But he keeps digging a bigger hole for himself when he claims that the path he recommended — which included no public assistance — would have been successful from the start. Both Presidents Bush and Obama rejected that advice, and there is little evidence the industry would have survived without the breathing room provided by public funds.
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